Editor's Letter

U.S. Economy vs. Wine Economy

I am writing this letter shortly after Congress raised the debt ceiling and Standard & Poors lowered its rating for U.S. government bonds from AAA to AA. As we all know, chaos broke out on Wall Street. The Dow Jones Industrial Average dove one day, rose the next, dove again, and so on for six days. Today, as this issue is going to press, it is rising again. Few expect The Dow to stay up, I suspect, and it’s likely that the stock market will remain unsettled for some time to come.

It all seemed avoidable and unnecessary. Many winery and vineyard owners share the frustration of the U.S. business community in thinking that Congress blew its chance to calm the economic waters as the debt ceiling deadline approached. Instead of handling the challenge well in advance, Congress postured, delayed and bickered until the boat rocked wildly. Now we may all get wet.

This is our annual Winery & Vineyard Economics Issue. Ten days ago I was prepared to enthuse about all of the good economic news that has unfolded lately for the wine industry. Now I suspect it’s a more cautious scenario. Certainly the overall health of the economy has an effect on demand for wine. How will shrunken stock portfolios and the possibility of a new recession affect the bottom line of the wine industry?

The good newsLet’s review the recent good news.

In California, demand and prices for grapes are up.

Store sales of domestic wine across the country are as hot as the Chinese economy.

Direct-to-consumer wine sales grew every month this year through July.

Paul Franson’s story about the Allied Grape Growers annual meeting (see page 17) broke the good news about rising demand for grapes.

My own reporting on retail wine sales (see “Domestic Wine Sales Up 9%”) shows an ever-brighter sales picture for domestic wine producers. Dollar sales grew 9% in July over the previous year, according to the Symphony IRI Group. That’s a huge number for such a big market. People are buying more wine, plain and simple. They are buying more low-priced and mid-priced wines, and they especially are buying more wines priced $20 and higher. This category has been blazing for at least two years now and posted 32% growth over the July 2010 sales. It’s the category that thousands of Wines & Vines subscribers at artisan wineries inhabit.

Moreover, the vital direct-to-consumer sales channel also has grown extremely well this year, both in number of cases and in dollars. Increases in the value of DtC shipments have varied from 2% in March (over last March) to 17% in May and 6% in July, according to our research arm, WinesVinesDATA, working with ShipCompliant.

What’s next?By the time you read this in September, it will be apparent how the stock market panic played out and whether the perceived threat of a dip into recession was real. But I think it makes sense to acknowledge that the wine economy doesn’t always follow the overall economy. Even if the stock market stays down, wine sales may stay up.

The wine business has already done much of the hard work needed to succeed in a tough economy. Wineries have been on a strict diet for almost three years. They’ve been going to the gym and taking night classes. Now they are leaner, stronger and smarter. They are much better prepared for the new economy.

Competition for consumer dollars toughened up immediately after the banking crisis in fall 2008. Over the past three years that competition has breathed new life into the wine marketplace in terms of better wine quality, more compelling packaging and, most importantly, greater value per dollar spent by consumers.

Those consumers have continued to evolve, also. Recently, the Gallup Poll showed for the second time that more Americans claimed wine as their favorite alcoholic beverage than beer, the longtime favorite of their parents. This generational change has been a long time coming and is unlikely to reverse itself for at least another generation.

With these two developments in mind, it’s not so hard to remain positive. A leaner, more competitive wine industry and a thirstier, more loyal consumer should keep the long-term outlook for the wine economy bright.